Value for Money

Annual Report 2016-2017

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Introduction We are very proud of our work to continue to improve value for money. Highlights from 2016/17:

y We delivered £0.5m recurring savings and have reduced 2017/18 budgeted spend by a further £3m

y We started 474 homes on site and handed over 184 homes in to management

y We reported our best ever surplus of £69.6m and operating margin of 34% on social housing lettings. Our operating margin excluding one off fair value gains was 33%. Our surplus is entirely reinvested into building new homes, improving existing homes and delivering better services for our residents

y We continued to engage with residents to help improve value for money at the same time as improving services

y We’ve continued to support our residents with the Financial Inclusion team providing financial help and sourcing funding for residents impacted by the welfare reform changes

y Our Community Development teams supported 363 residents in to employment increasing our social value in our communities.

This report sets out how in 2016/17 we achieved value for money alongside meeting our strategic objectives.

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Delivering and Monitoring Value for MoneyOur Strategic Board has driven the delivery of VFM but are supported by the whole business and our residents to drive our VFM agenda forward as follows:

Who Responsibility

Strategic Executive Team Leads and reviews VFM focus on behalf of Strategic Board.

Staff Deliver and support VFM initiatives and identify areas to improve VFM.

VFM Task Group / Residents’ Council Joint residents and staff group that challenges and scrutinises spend, monitors delivery of the procurement strategy and the efficiency programme. In addition to the Task Group the Residents’ Council monitors performance at a corporate and local level on scrutiny reviews. They are supported by area panels and regional asset management panels to improve delivery of services and reduce cost.

Finance Committee Scrutinises our finances and delivery of efficiency programmes.

Development Committee Monitors delivery of the development programme to ensure we make effective use of our capacity.

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The following controls provide oversight and bring rigour to the delivery of value for money:

Financial management Rigorous budget setting & financial planning engages staff, residents and Board to prioritise investment decisions. Monthly performance monitoring.

Performance managementOperations monitored monthly by directors plus at every Board and Residents’ Council meeting.

People managementAnnual plan linked to team plans and individual annual performance objectives.

Risk Appraisal GroupGiving rigour to all spend proposals which would commit the business to spend over £25,000.

Embedding VFM

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Our ObjectivesOur Strategic Plan ‘Unlocking Potential’ was set in a very different context to previous plans with significant challenges in the housing sector.

These include: y The housing crisis y Government emphasis on home ownership y Welfare reform y Tough economic conditions y Annual rent reduction of 1%.

Unlocking Potential is about:

Unlocking the potential of our residents to be more independent and self-serve. Residents’ expectations increase as large corporate entities continually raise the bar – but they are able to invest millions to be able to achieve it. We set three targets:

y Net promoter score of 71.58 compared to target of 50

y Residents using services on line: 37.28% compared to a target of 35%. That’s 8,300 residents now signed up to MyAccount

y Residents find it easy to get the help they need: 8.87/10 compared to target of 8/10.

Unlocking the potential of our people giving them the tools, training and leadership to work productively:

y 7.65/10 staff have the right tools to deliver great services compared to a target of 8/10

y 9.44/10 staff say AmicusHorizon makes a positive difference compared to a target of 9/10.

Unlocking the potential of our business reducing costs, improving operating margin and using increased capacity to build more homes:

y New homes programme delivered 588 starts on site compared to a target of 529

y Operating margin of 34% compared to a target of 30%.

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Delivering value for money from our assetsWe’ve continued to apply our approved methodology for understanding our assets, establishing their return and making informed decisions on how we can then create more capacity to build new homes.

y We own and manage nearly 26,000 homes y 98% of our homes are dedicated to social

housing activities y 87% of our homes provide general needs or

supported housing accommodation.

We calculate the return on social housing assets as the surplus from social housing activities for the year as a percentage of the gross cost at the start of the year. The gross cost of our social housing properties is the build cost plus capital improvements.

At 31 March 2016 the gross cost of those homes was £1,465m (31 March 2015: £1,441m). The amount we generated from the social housing activities represents total income (including rents and service charges) less the cost of running the activities (including the management and maintenance). We generated a surplus before interest costs of £54.0m (2016: £45.6m). Over the last five years we’ve improved the return on our assets as we’ve improved our surplus and increased our housing asset base.

Return on assets

2017 3.7%

2016 3.2%

2015 3.0%

2014 2.7%

2013 2.2%

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Asset disposals strategyWe continue to deliver on our asset disposals strategy and disposing of our poorly performing homes which are primarily in London.

Our strategy sets out the criteria for voluntarily disposing of social housing dwellings. This helps us to make the best use of our assets and so operate more efficiently.

We carry out a financial appraisal for each property meeting one or more of a range of criteria. The challenge is to decant residents to enable us to sell a street property rather than one flat in the property.

Asset management sales generated £18.7m receipts (£15.3m net) achieving 107% of our target of £17.5m. We sold 27 homes at an average of £687k. Net proceeds are reinvested back in to our development programme.

AcquisitionsIn August 2016 we completed a transfer of engagements with Southwark & London Diocesan Housing Association (SLDHA). That results in AmicusHorizon gaining 277 homes and taking on the staff and residents from SLDHA.

In March 2017 we took back the management of 473 properties on the St Martins Estate in Lambeth from another housing association. These two transactions gave rise to a fair value gain of £21m in 2016/17.

DevelopmentOur annual surplus including receipts from asset disposals is reinvested back in to new homes. Highlights from our development activity during 2016/17 included:

y Started 474 homes (target 423 homes) y Completed 184 homes (target 108 homes) y Completed 66 sales with total value of

£7.66m including 61 first tranche new shared ownership homes

y At 31 March 2017 we had 53 shared ownership homes practically complete and unsold – all bar four were under offer

y 42 homes were under offer within three months of handover in to sales

y First tranche sales achieved £6.9m gross proceeds (target £6.9m) (2015/16: £10.9m v target £7.2m).

Investment parametersInvestment parameters are set annually by Strategic Board following scrutiny by Finance and Development Committees. They are a vital element of our control framework and guide us on which schemes we choose to invest in. There are some occasions however when we choose to progress a scheme not meeting our criteria, recognising the need to balance our social objectives against ensuring financial returns.

 

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MaintenanceAsset management continues to challenge how to deliver services to improve value for money but still maintain quality and satisfaction.

Some examples of what was achieved in 2016/17 include:

1. Side by Side: we launched our new Customer Experience Statement ‘Side by Side’ on 1 April 2016. The statement is a culmination of a series of operational reviews in to the value for money of our services and how much they reflect the responsibilities outlined in our tenancy conditions. The aim is to bring consistency and clarity of response between the regions across a range of repair requests. The outcomes were:

y Repairs satisfaction remained above 95% throughout the year and was consistently higher than 2015/16

y Reduction in the number of orders raised, on average down at least 10% year on year

y Responsive repairs spend down on budget by £0.6m and year on year by £2m.

2. Windows and doors refurbishment: this project was run with residents to determine a future windows and door replacement strategy. Where appropriate we will adopt a part refurbish / repair strategy. We’ve piloted the strategy on an estate in Sussex. We achieved 25% savings (£63k) on tender.

3. Domestic waste management: we brought the service for the collection and disposal of domestic waste in house. The outcomes were:

y Reduced out of hours emergency call out y Provided regular and thorough waste

removal service y Gave residents direct line to deal with

queries y Enabled sign off of work in real time on

site using mobile working tools y Achieved £350k savings per annum.

4. Grant income: we received grant funding of £36k to support a boiler replacement programme to install efficient boilers and meters to flats. Grant funding totalled 5% of the project cost.

 

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Procurement We operate a mature procurement function which continually looks to remove waste and redesign offers ahead of tendering. We are tendering in a rising and uncertain market. Bidders are more selective of which opportunities to target. We’ve been shaping individual strategies to ensure we attract competition and drive out costs.

We had set a target to deliver £600k recurring savings through procurement. We secured £656k savings on a spend profile of £7.48m. This represents a 9% saving.

Our actions have included: y Stripping waste out of specifications

(responsive repairs) y Disaggregating packages of works -

purchasing materials on behalf of the contractor separating out sub-contractor elements (London kitchens)

y Market engagement – to design the requirement and offer

y Advertising more widely through the Government’s Contract Finder Portal and making use of tendering portals eg Kent County Council portal.

The table below shows where savings were made in 2016/17:

Project Spend per annum Savings Savings

per annum

External repairs, decorations and scaffolding 750k 5% 40k

Windows / doors replacement 1,000k 14% 140k

Water hygiene 600k 26% 100k

Mobility lifts 200k 20% 40k

Responsive repairs 1,400k 12% 170k

Kitchen materials 300k 2% 7k

Grounds maintenance 342k 5% 18k

Tanker hire 217k 54% 117k

Pest control 90k 26% 24k

Total 656k

Procurement frameworksAmicusHorizon was the accountable body for the South East Consortium (SEC). SEC changed its funding model in 2016/17 moving to a contractor levy based income structure rather than annual membership fee. As a result we will save £50k per annum on membership costs, and increased the hosting charge by approximately £25k per annum.

 

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Benchmarking We have made use of both the Housemark benchmarking and Sector scorecard ratios. Housemark applies a certain methodology for determining unit costs in particular, however the Sector scorecard figures can be extracted straight from financial statements. Both methods are valid albeit we’re not able to compare across the two data sets. We use benchmarking as an indicator of our performance against our g15 peers and to pick up trends in our performance. Although both sets of benchmarking are a year behind our financial reporting they still provide an effective comparison of performance against our peers.

Housemark Benchmarking 2015/16

Financial performance 2014/15 2015/16 Movement

Cost per property

Housing management £632.55 £621.80

£10.75 reduction compares to average increase of £3.46 for peer group

Responsive repairs & void works £904.73 £880.41

£24.32 reduction compares to average increase of £8.38 for peers. We saw a decrease from 3.85 to 3.70 in 2015/16 for the average number of responsive repairs / property

Major works and cyclical maintenance

£1,543.61 £1,517.81 £25.80 decrease compares to average increase of £14.07 for peers

Rent arrears 3.29% 3.1%

We continue to deliver strong performance. At March 2017 our arrears stood at 3.28%, Universal Credit claims in March and the impact of the Southwark & London Diocesan stock transfer in year impacting performance

Void rent loss 0.58% 0.5% At March 2017 performance stood at 0.56% which was in line with target

We’ve previously reported we’re expensive compared to our peer group. It’s pleasing to note that our Ways of Working programme and focus on value for money are beginning to pay off. Our costs decreased from 2014/15 to 2015/16 more quickly than three quarters of our peer group. We’re now in the upper quartile for responsive repairs & void works cost per property, but we remain in the lower quartile for housing management and major works. Headline costs are however improving in contrast to the average for our peers. We expect to see the benefit of mobile working start to come through in 2017/18.

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Sector scorecard performance

Business health 2016/17 2015/16 g15 2015/16

Operating margin – total excluding sales and fair value gain

33% 28.5% 32%

We’ve shown year on year improvement in operating margin since 2009 and are now in line with the g15 average. With operating sales our margin would have been 40%. Improved performance shows the benefit of the Ways of Working efficiency programme. This improvement is within our underlying social housing business. One of our internal parameters requires us to meet interest costs from core underlying business, we continue to achieve this

Operating margin – social housing 34% 29% 36%

EBITDA-MRI 177% 144% 190%

Operating efficiency 2016/17 2015/16 g15 2015/16

Social housing cost per unit (CPU) £3,702 £4,038 £4,732 Overall we have achieved an

8.3% reduction in unit costs and are 22% below our peer group. We perform well in housing management and major work, but as previously noted responsive repairs remains high. Whilst we have been reducing costs we would expect to see further efficiencies coming through from ‘Side by Side’

Housing management CPU £960 £1,023 £1,320

Service charge CPU £454 £465 £613

Maintenance CPU £1,469 £1,676 £1,084

Major repairs CPU £775 £794 £855

Other social housing CPU £44 £80 £860

Rent collected 99.34% 98.82% 98%

Overheads as % of turnover 11.9% 12.5% 11.7%

Remains in line with the average having reduced by 0.6% from 2015/16

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Efficient asset management 2016/17 2015/16 g15 2015/16

Return on capital employed 5.5% 4.99% 4.5% As we’ve improved our

operational performance so we have increased the return generated from our assets. Our asset disposals strategy also helps us improve our asset base.

Responsive repairs / planned spend 43% 60% 64%

Outcomes 2016/17 2015/16 g15 2015/16

Customer satisfaction 99.26% 98.5% 76% As we’ve reduced costs we’ve

been able to maintain high levels of customer satisfaction which shows how by engaging with our residents we get their buy in to changes we make to services.

As reported in our financial statements we invest our surpluses in to new build homes and major works for our existing homes. We have been working up our programme as demonstrated by the ratios and expect the amount invested to continue to increase as we move towards 1,500 homes per annum.

£ Invested in new housing for every £ generated from operations

£1.16 £0.94 £1.20

Development and capacity 2016/17 2015/16 g15 2015/16

Gearing 50% 54% 45% We have historically been constrained in our ability to borrow by a gearing ratio. As part of the merger with Viridian we refinanced our loan portfolio and will be able to unlock our capacity. We anticipate delivering 1,500 starts on site by 2020. Whilst the first two years of the 2015-18 programme have generated relatively low completed, the programme is back loaded. We are due to complete 408 homes in 2017/18.

Units developed as % units owned 0.71% 0.4% 2%

Units developed 184 101 781

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Our PeopleImproving efficiency and delivering better value for money is well embedded in our culture.The Investors in People framework supports us to achieve our goals. Our gold accreditation runs through to 2017.

Our Training Academy continues to bring high quality training to our staff. We offered 325 courses in 2016/17 and trained the equivalent of 5,300 people.

Although we didn’t achieve our target of 6 days per employee for 2016/17 overall sickness was 7.56 days compared to 7.15 days last year. This is upper quartile performance compared to the g15 who average 8.69 days. We monitor sickness absence and voluntary staff turnover at Strategic Board and through the Nominations & People Committee. We carry out informal and formal sickness absence reviews when staff

reach absence triggers. We support staff on long term sickness with referrals tooccupational health and help them with phased return to work plans.

Our staff turnover is relatively low at 7.7%. This compares to 15.7% in 2015/16 and is upper quartile compared to the g15.

The number of staff has gradually reduced over the last five years. Where teams have increased this is linked to value for money objectives such as recruiting a legal services team, enabling us to reduce office and management legal fees paid externally. Additional posts which support our Fresh Visions charity and Community Development team are funded through grants, whilst income team increases are funded through improved former tenant arrears collection.

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Sustainability We measure our energy and environmental performance using the Sustainable Homes Index for Tomorrow (SHIFT) scheme. This gives us a comprehensive benchmark of our energy and environmental performance. Having achieved SHIFT Silver in 2014 we are delighted to have achieved SHIFT Gold in 2016.

In 2016/17 we achieved the following: y Reduced operating costs: £70k per annum

on office energy, £200k per annum reducing business mileage

y Secured £1m grant funding to improve the energy efficiency of 300 homes

y Continued our work to improve the water efficiency of homes fitted with a water meter. We visited 500 homes, saved 7m litres water, reducing residents’ water bills by £9k

y Continued to develop cost effective energy retrofit investment models. We’re testing the Dutch EnergieSprong model to see if it’s a cost effective model for improving our homes. We have submitted an EU funding application to run a pilot project.

In 2017/18 we will: y Continue our work with water companies to

decrease residents’ bills y Run a pilot project to improve energy

efficiency of our homes y Pilot smart home technology to see if we

can offer a cost effective method to manage condensation and mould repair costs and which helps residents control energy costs

y Look to achieve financial savings on our utility costs ensuring we receiving all renewables income owed to us and to respond to legislation

y Continue to work with two water utilities entities to deliver large scale water efficiency advice and retrofit. We expect to continue to deliver the projects over the next two years and deliver a significant number of retrofits in each region.

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Social value In fast changing and uncertain times we are reaching out to give support and are making a real difference to people’s lives and communities. Our work has been focused on three themed priorities:

y Jobs y Residents’ enterprise y Health and wellbeing.

Our Community Development performance has delivered great results in an operating environment which continues to be challenging. Highlights in the last 12 months include:

y We provided community social impact to the value of £33m (using the HACT / Fujiwara social impact value calculation). We achieved:

y 4,178 people engaged on community programmes (target 4,000 people)

y 523 progressing in to new jobs or further training (363 residents achieved new job starts) (target 350 people)

y 178 volunteers involved in our business (target 150 people)

y We secured £1.1m new co-investment in our services (2015/16: £585k)

y 99% customer satisfaction across all programmes.

In recognition of our work we won a Global Business Award for the Best Community Initiative. We retained our top ‘Platinum grade’ EU skills Service Quality Standard.

We continue to be a service provider of choice for commissioners, funds and co-investors. For 2016/17 we exceeded target securing £1.1m new service investment from 65 bid proposals. We have 38 bids awaiting determination with a value of £8m. Given the environment we’re working in we remain cautious on the levels of future matched funds available. To help prepare we’re aligning closer to the fewer likely remaining wealth and philanthropic service co-investors.

We use Social Impact Value (SIV) analysis to assess service impact and help determine where we should invest our resources. By driving up project impact values we include the impact activities have on our residents. In 2016/17 we significantly increased our community programme social impact value to £33m (2015/16: £24m). The overall service investment (ie AH funds to external funds) is £1: £19.

Fresh VisionsOur charity Fresh Visions progressed well:

y Supported 532 of the most vulnerable local people

y Secured £436k new funds to support forward activities for 2017/20.

Digital InclusionThe Digital Inclusion team achieved the following in 2016/17:

y 37.27% of households under the age of 70 signed up to MyAccount

y Completed 2,780 digital inclusion sessions y Delivered MyAccount training to 169

colleagues y Managed a network of 42 digital champions.

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Merger plansAmicusHorizon merged with Viridian Housing on 22 May 2017 to create Optivo. As a new consolidated business we will be able to work more efficiently. Optivo plans to deliver recurring savings which will equate to £10m per annum by 2020. These savings are only deliverable as a result of the merger.

ConclusionsWe remain committed to deliver ever better value for money. We’re also committed to maintaining strong resident engagement to ensure we deliver the right services as efficiently as we can.

Through 2017/18 we will continue to improve value for money delivering the following priorities:

y Completing a value for money review of the Direct Labour Organisation ahead of rolling out the DLO London wide

y Continue to drive down cost through our programme of delivering £3m recurring savings

y Begin to achieve efficiency from the merger with Viridian Housing

y Progress our affordable warmth programme y Continue to push forward with our digital

enterprise agenda giving residents more flexibility and encourage self service

y Begin to integrate the AmicusHorizon and Viridian Housing businesses with the aim of generating £10m annual savings by 2020.

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